Dividends can be used by management to send a signal to the market regarding positive future expectations.

Question

Quizplus · Accepted Answer

When a company announces an increase in dividends, it can be seen as a positive signal to investors that the company is confident in its future earnings and growth potential. Investors may view the dividend increase as a sign that the company expects to generate strong cash flows or profits in the future, which can lead to a higher stock price. Therefore, dividends can be used as a way for management to signal positive future expectations to the market.

Dividends Can Be Used by Management to Send a Signal